Australia’s competition watchdog has rejected a proposed merger between mobile phone and internet providers Vodafone Hutchison Australia (Vodafone) and TPG. The announcement was made earlier this evening, after the government inadvertently – it seems – published the news on its mergers register before the stock market closed, sending share prices plummeting.
The proposal was first aired in August 2018, and it didn’t take long for it to draw the ire of the Australian Competition and Consumer Commission (ACCC), which announced in December 2018 it proposed to block the merger. At the time, the ACCC argued customers could end up “paying higher prices” for “less innovative” mobile and fixed broadband plans if the companies were allowed to merge.
Once the stock markets closed this afternoon, the ACCC gave further information about its rejection of the TPG Vodafone merger, citing reasons including:
- The merger would further concentrate an already concentrated Australian telecoms market
- The three largest carriers – Telstra, Optus and Vodafone – control more than 87% of the market, while in fixed-line internet, Telstra, Optus and TPG control 85%.
- A failure of the proposed merger to satisfy the legal test of not “substantially lessening competition” in the markets affected.
ACCC chairman Rod Sims said in this evening’s statement:
Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels
Given the longer term industry trends, TPG has a commercial imperative to roll out its own mobile network giving it the flexibility to deliver both fixed and mobile services at competitive prices. It has previously stated this and invested accordingly.
The proposed merger between TPG and Vodafone is likely to substantially lessen competition in the supply of mobile services because the proposed merger would preclude TPG entering as the fourth mobile network operator in Australia.
Part of the ACCC’s reasoning hinged on TPG’s entering into the mobile carrier market; however, it’s unclear whether – now the merger has been knocked back – whether TPG will continue with developing a fourth carrier network.
It had already announced a decision to scrap precisely these plans, citing issues with inability to use Huawei equipment, but which was widely seen as a move to head off a possible objection by the ACCC.
Leaked announcement causes share chaos
Uncharacteristically, the announcement was made public before the close of trade on Australia’s stock exchange. This had a diabolical effect on the share prices of both businesses – only a small part of VHA’s stock is publicly traded, and that lost 28.5% of its value in the last trading of the day.
For TPG, the news wasn’t quite so dramatic, with loses of 13.5%, seeing shares drop from around $7.20 to $6.07.
ACCC chairman Rod Sims said the unintentional release was “embarrassing”, and that upon being made aware of the blunder, it released the public statement as soon as it could. He further commented that “[the ACCC was] pretty devastated from our side and are acutely aware of the impact on the market”.
Commenting on how the blunder occurred, Mr Sims remarked that the ACCC has a small capital budget and “lousy” computer systems.
What next for the two companies?
Vodafone CEO Inaki Berroeta slammed the ACCC’s actions, saying its reasoning – encouraging TPG to create a fourth carrier network – was “fantastical” and a “fallacy”.
“[The merger] is not creating any concentration … We will fight this decision,” Mr Berroeta said.
He said the decision, and the way it was revealed, was “disappointing” but he had not made an official complaint about the accidental disclosure.
On the other side, TPG Telecom executive chairman David Teoh said the decision “must be challenged” in a statement posted to the ASX:
“A combination of our companies would create a new, vigorous and vibrant competitive force. Left unchallenged, this decision will only serve to further entrench the enormous power of Telstra and Optus.”